You Can Take That to the Bank

Bankers are simple to figure out. They just want one thing: to know that you can repay the loan you are requesting. However, few if any bankers will take a leap of faith in you if you can't show them a few things first, particularly a well thought out business plan.

“That's critical,” a Northeast banker who preferred not to be named says about a business plan. “That's step number one. That's your map to success.”

The business plan should include plans not just for the initial year but also for several subsequent years.

“Banks are in the business to lend money and make a profit,” says Joe Maurer, COO of Momentum Female Fitness Center in Mechanicsburg, PA. “Therefore, they are going to evaluate your [business] plan. If your plan makes sense, they are going to provide you a loan.”

However, you may have to keep knocking on doors before a bank decides to take a chance on you. Katherine Coltrin, co-owner of Back Bay Fitness Center in Costa Mesa, CA, called on 12 to 15 banks before one took her and her business partner, Lisa McGhee, up on their plan for a personal training studio.

“Most people probably give up too soon,” Coltrin says about approaching bankers. “They have to be willing to dress up, take their business plan in and talk to them. That comes down to being very passionate.”

Of course, having business management experience is always a major help in getting a loan, the Northeast banker says, especially in a field as competitive as health clubs.

“Why was one [club] successful and one not?” he says. “A lot of times it comes down to the management ability of a person.”

A club owner that develops a relationship with a banker often can return to the same banker for future financial needs.

“The hardest step is the first step,” the banker says. “Once you've proven yourself — that you have the management talent to be successful — any financial institution will want to be a partner in your success.”

Following are keys to getting a banker to pay attention to you and to keep that relationship going.

Know what banks want from you

Prior to lending money, banks want to see:

Your ability to repay the loan

Your business plan and marketing plan

Your personal debts and credit history

Your personal guarantees or collateral

Your business debts and credit history

Financial performance of current business (if there is one)

Your experience in the industry

Your management capability

During your loan period, bankers want to see periodic financial statements, generally quarterly at first, then possibly annually. The longer your relationship with a bank and the more successful your club, the less often you may have to show the bank a report.

Breathe your business plan

Whether you are going to open a new club, expand your current facility or renovate it, you must have a thorough business plan to show your banker.

“I can't stress more the business plan,” says Coltrin. “Put it together and know it inside and out without even opening it up.”

The business plan should be thorough and should include pro forma cash flows, expansion plans, demographic information about the area from which the club will draw members, and how the club will grow the business.

Don't talk to strangers — just flirt with them

When you are looking for another loan, go back to a banker that you already know — and who already knows you. That banker already knows your ability to pay and your reliability. Why try to develop that relationship with a new bank?

However, that doesn't mean you shouldn't shop around a little. You want to get competitive quotes from about four to five banks so you have something to compare. Chances are, if you are a good customer of your current bank, they will be able to arrange an agreement that is more favorable to you if you can show them what other banks have offered you.

Limit the length of the personal guarantee

If the bank requires a personal guarantee from you, you may be able to set a limit on the length of that requirement, says Maurer.

“Because I had a relationship with the bank, I was able to get a better loan and no personal guarantee,” says Maurer.

Set a reasonable length of the loan

If you are getting a loan for new equipment, make sure the loan length isn't longer than three to five years since anything longer than that could be longer than the life of the equipment.

For a building loan, the length will probably be the same as a house mortgage — between 25 years and 30 years, says Maurer. If you are leasing your building, the bank will probably ensure that the loan length is no longer than your lease period in case the building owner decides not to renew your lease.

Know the industry

You have to know the industry, your competition and how you are going to be different from that competition. That should be part of the business plan.

If there is no difference between you and your competitor, then you are only going to compete on price.

“That's a no-win situation for everybody,” says Maurer.

You also must know the up and the down sides to the business. Anticipate the objections a banker might have and how you can respond to those, says Coltrin.

Clear up any red flags

The biggest red flag for a bank might be bad credit history. Another red flag is lack of experience in a health club or lack of business experience/knowledge. Find a way to get the experience and knowledge you are lacking — either through education or by bringing on a partner that has strengths in your area(s) of weakness.

In the end, if you have a good business plan that shows how your business will grow and pay back the loan and you can prove that you or one of your partners has the management ability to run a business, then you are on your way to finding a bank that will invest in you — just don't give up after the first try.